Seeking your Inputs on Selling Tenant Occupied Rental Property

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VeryBlessedCali
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Seeking your Inputs on Selling Tenant Occupied Rental Property

Post by VeryBlessedCali »

Good morning Folks!

Seeking your inputs on selling Rental Property that is Tenant- Occupied 1 year lease until Aug 2022. Location CA (HCOL College town). Owned for 13 years, monthly cashflow $1,450/mo, never vacant. Neighbor of this property sold in only 6 days in the market (3 offers in 6 days, they took the offer over asking).

Not interested in 1031 because we want to be out of Real Estate investing. Currently researching here the best strategy to soften the blow of Capital Gains on the sale- your inputs greatly appreciated (MFJ Tax Rate: Fed 22% CA 9.3%).

Questions:
1.) Are there any legal notices we need to be providing current Tenant with our plan to sell property?

2.) We understand here in CA, the Lease becomes a Lease Assignment with the Buyers. Anything else we need to know in that regard?

3.) Aside from matterport, are there any other tools for virtual tours of the property that can be used for marketing/property listing?

4.) We are having our CPA provide an estimate of the Capital Gains (estimated gain is $300k deducting agent commissions). Your inputs on strategy for minimizing cap gains greatly appreciated.

Thank you very much and have a BLESSED Day!
DonFifer
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Re: Seeking your Inputs on Selling Tenant Occupied Rental Property

Post by DonFifer »

Just sold all of my rentals last year in Los Angeles County (a duplex and several single family homes). After talking to a number of real estate agents, it seemed prudent to have all of the units/homes empty and ready for viewing. Handled each tenant as needed. One we gave three months to move, one we served a 30 notice on because the rent check was late again. One tenant was a very recent divorcee, so we stopped collecting rent provided that she move out in 60 days. The two months of saved rent made it easier for her to move. Etc., Etc. By staggering when the different tenants moved out, we were able to go in and fixed the units as needed to make them really shine. As each of them went on the market, things went amazingly fast, and all sold within weeks of listing.
We had been using the same CPA since we started our LLC. He had all of the records necessary to get the CG as low as possible, and we just had to bite the bullet and pay them.
togb
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Re: Seeking your Inputs on Selling Tenant Occupied Rental Property

Post by togb »

Your lease should have the details on notice required, and tenants cooperating with showing the house that's for sale. It varies by state, but it should be in the lease.

In my state, you do have to give the notice. Sometimes properties are sold and the new owner takes over the lease-- so the only change to the tenant is where they send the rent check.

If someone were under lease, I'd be seeing exactly what's in the lease paperwork, and comply to the letter.
rich126
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Re: Seeking your Inputs on Selling Tenant Occupied Rental Property

Post by rich126 »

togb wrote: Sat Sep 18, 2021 5:43 pm Your lease should have the details on notice required, and tenants cooperating with showing the house that's for sale. It varies by state, but it should be in the lease.

In my state, you do have to give the notice. Sometimes properties are sold and the new owner takes over the lease-- so the only change to the tenant is where they send the rent check.

If someone were under lease, I'd be seeing exactly what's in the lease paperwork, and comply to the letter.
When I was looking to rent a place that was still occupied by a renter, it seemed impossible to get inside the place because the renters were being difficult. Needless to say I rented something else. Not everyone is cooperative despite what a lease or law may state.
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Re: Seeking your Inputs on Selling Tenant Occupied Rental Property

Post by Sandtrap »

The existing 1 year lease has to have a clause in case of property sale and in some states, if the property owner needs the unit for self or family to live in with proper advanced notice. Or other exceptions.
Lacking that, you can negotiate with the tenant to move out earlier than lease expiration with “incentives”.
Lacking the above, much of the time, the new owner must comply with the existing lease agreement after purchasing the property.

Take a copy of your lease agreement and any applicable things to legal counsel to explore what options are available to you. This is very contract and local laws/code specific.

To avoid a mess, don’t proceed with a tenant cancellation of lease or other things unless you know exactly what you are doing. If in doubt, have your own legal counsel, not a realtor or agent, handle things in full CYA mode.

Dislaimer: Not legal or medical advice.

From experience.
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Watty
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Re: Seeking your Inputs on Selling Tenant Occupied Rental Property

Post by Watty »

VeryBlessedCali wrote: Sat Sep 18, 2021 2:37 pm Seeking your inputs on selling Rental Property that is Tenant- Occupied 1 year lease until Aug 2022.
It was likely a big mistake to have leased it just a month ago if you now want to sell it.

Even if you in theory have the right to make the renters move there is still an eviction moratorium so if they want to fight it there is likely little that you can do to actually get them out of the house.

If a landlord tried to make me move a month after signing a lease then I would be very upset and willing to play hardball with them. This is especially true since it sounds like you would likely want them to move around the holidays and the end of the semester.

It you are just trying to sell it to some other investor with the renters in place you might offer to pay for maid service for the renters to make sure it is clean and then pay the renter a bonus if it sells without any problem. You may also want to pay for them to take a short vacation the weekend that the house goes on the market.

You also need to be prepared that at best the renters will tell any potential buyer about any perceived problems with the house.

One thing you might try is seeing if the current renters would be interested in buying it.
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cchrissyy
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Re: Seeking your Inputs on Selling Tenant Occupied Rental Property

Post by cchrissyy »

Watty wrote: Sat Sep 18, 2021 8:09 pm
It was likely a big mistake to have leased it just a month ago if you now want to sell it.

agree with this

being a college town, i expect that renting and selling are both very seasonal for spring/summer.
so wait 6 months (?) and offer your current tenant that they can get out of their lease early if they want. it might be a very welcome offer depending on their plans for next summer and the following school year.
if they prefer to stay, it's up to you to not renew (therefore selling in the fall) or to renew another year and make the same offer the next spring or summer.

it's best to sell when vacant.
you have full control of how clean and repaired it is, and how accessible to buyer visits, and nobody gets scared off by tenant complications.
if you sell while occupied there is a lot less in your control and your market is limited to other landlords. local residents will not buy a house now for move in a year later.
many professors/researchers/staff who might want to buy a house in your town next summer haven't even applied for the job yet.
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VeryBlessedCali
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Re: Seeking your Inputs on Selling Tenant Occupied Rental Property

Post by VeryBlessedCali »

Watty wrote: Sat Sep 18, 2021 8:09 pm
VeryBlessedCali wrote: Sat Sep 18, 2021 2:37 pm Seeking your inputs on selling Rental Property that is Tenant- Occupied 1 year lease until Aug 2022.
It was likely a big mistake to have leased it just a month ago if you now want to sell it.

Even if you in theory have the right to make the renters move there is still an eviction moratorium so if they want to fight it there is likely little that you can do to actually get them out of the house.

If a landlord tried to make me move a month after signing a lease then I would be very upset and willing to play hardball with them. This is especially true since it sounds like you would likely want them to move around the holidays and the end of the semester.

It you are just trying to sell it to some other investor with the renters in place you might offer to pay for maid service for the renters to make sure it is clean and then pay the renter a bonus if it sells without any problem. You may also want to pay for them to take a short vacation the weekend that the house goes on the market.

You also need to be prepared that at best the renters will tell any potential buyer about any perceived problems with the house.

One thing you might try is seeing if the current renters would be interested in buying it.
Thank you for this info Watty. Lease was signed in March. This is the 2021-2022 school year Lease. For 13 years, we found it is customary in this college town for students to secure Lease in the Spring for September move-in. All our previous Leases were signed in March for Sept (Fall) move-in.
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VeryBlessedCali
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Re: Seeking your Inputs on Selling Tenant Occupied Rental Property

Post by VeryBlessedCali »

cchrissyy wrote: Sat Sep 18, 2021 8:31 pm
Watty wrote: Sat Sep 18, 2021 8:09 pm
It was likely a big mistake to have leased it just a month ago if you now want to sell it.

agree with this

being a college town, i expect that renting and selling are both very seasonal for spring/summer.
so wait 6 months (?) and offer your current tenant that they can get out of their lease early if they want. it might be a very welcome offer depending on their plans for next summer and the following school year.
if they prefer to stay, it's up to you to not renew (therefore selling in the fall) or to renew another year and make the same offer the next spring or summer.

it's best to sell when vacant.
you have full control of how clean and repaired it is, and how accessible to buyer visits, and nobody gets scared off by tenant complications.
if you sell while occupied there is a lot less in your control and your market is limited to other landlords. local residents will not buy a house now for move in a year later.
many professors/researchers/staff who might want to buy a house in your town next summer haven't even applied for the job yet.
Thank you for this info cchrissy. Lease was signed in March for September move-in.
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VeryBlessedCali
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Re: Seeking your Inputs on Selling Tenant Occupied Rental Property

Post by VeryBlessedCali »

Sandtrap wrote: Sat Sep 18, 2021 7:55 pm The existing 1 year lease has to have a clause in case of property sale and in some states, if the property owner needs the unit for self or family to live in with proper advanced notice. Or other exceptions.
Lacking that, you can negotiate with the tenant to move out earlier than lease expiration with “incentives”.
Lacking the above, much of the time, the new owner must comply with the existing lease agreement after purchasing the property.

Take a copy of your lease agreement and any applicable things to legal counsel to explore what options are available to you. This is very contract and local laws/code specific.

To avoid a mess, don’t proceed with a tenant cancellation of lease or other things unless you know exactly what you are doing. If in doubt, have your own legal counsel, not a realtor or agent, handle things in full CYA mode.

Dislaimer: Not legal or medical advice.

From experience.
j🌺
Will do this. Many Thanks for all your inputs, sandtrap.
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VeryBlessedCali
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Re: Seeking your Inputs on Selling Tenant Occupied Rental Property

Post by VeryBlessedCali »

rich126 wrote: Sat Sep 18, 2021 5:52 pm
togb wrote: Sat Sep 18, 2021 5:43 pm Your lease should have the details on notice required, and tenants cooperating with showing the house that's for sale. It varies by state, but it should be in the lease.

In my state, you do have to give the notice. Sometimes properties are sold and the new owner takes over the lease-- so the only change to the tenant is where they send the rent check.

If someone were under lease, I'd be seeing exactly what's in the lease paperwork, and comply to the letter.
When I was looking to rent a place that was still occupied by a renter, it seemed impossible to get inside the place because the renters were being difficult. Needless to say I rented something else. Not everyone is cooperative despite what a lease or law may state.
Noted. Thank you rich126
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cchrissyy
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Re: Seeking your Inputs on Selling Tenant Occupied Rental Property

Post by cchrissyy »

Is it the Davis model lease?
You don't have to answer. I've been a renter in Davis and a landlord in Berkeley. Surely other college towns have similar norms.

In any case my advice is don't sell with a tenant in olace. next year, when it's time to sign again, find out if they want to stay another year or if they want to leave early. Explain that in your eyes it's better to let them be free of their obligation to pay summer rent so you can sell. If and when they are done in town, that's when you can list it.
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VeryBlessedCali
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Re: Seeking your Inputs on Selling Tenant Occupied Rental Property

Post by VeryBlessedCali »

cchrissyy wrote: Sat Sep 18, 2021 9:30 pm Is it the Davis model lease?
You don't have to answer. I've been a renter in Davis and a landlord in Berkeley. Surely other college towns have similar norms.

In any case my advice is don't sell with a tenant in olace. next year, when it's time to sign again, find out if they want to stay another year or if they want to leave early. Explain that in your eyes it's better to let them be free of their obligation to pay summer rent so you can sell. If and when they are done in town, that's when you can list it.
cchrissy, Not a Davis model lease. Our Lease is standard CAR (California Association of Realtors) Residential Lease Form which indicate "Tenant shall make premises available to Landlord or Landlord's agent to show premises to prospective or actual purchasers, tenants, mortgagees, contractors...

Appreciate you advice cchrissy. Thank you.
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VeryBlessedCali
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Re: Seeking your Inputs on Selling Tenant Occupied Rental Property

Post by VeryBlessedCali »

DonFifer wrote: Sat Sep 18, 2021 4:08 pm Just sold all of my rentals last year in Los Angeles County (a duplex and several single family homes). After talking to a number of real estate agents, it seemed prudent to have all of the units/homes empty and ready for viewing. Handled each tenant as needed. One we gave three months to move, one we served a 30 notice on because the rent check was late again. One tenant was a very recent divorcee, so we stopped collecting rent provided that she move out in 60 days. The two months of saved rent made it easier for her to move. Etc., Etc. By staggering when the different tenants moved out, we were able to go in and fixed the units as needed to make them really shine. As each of them went on the market, things went amazingly fast, and all sold within weeks of listing.
We had been using the same CPA since we started our LLC. He had all of the records necessary to get the CG as low as possible, and we just had to bite the bullet and pay them.
Many Thanks for this info DonFifer. Much appreciated.
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VeryBlessedCali
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Re: Seeking your Inputs on Selling Tenant Occupied Rental Property

Post by VeryBlessedCali »

togb wrote: Sat Sep 18, 2021 5:43 pm Your lease should have the details on notice required, and tenants cooperating with showing the house that's for sale. It varies by state, but it should be in the lease.

In my state, you do have to give the notice. Sometimes properties are sold and the new owner takes over the lease-- so the only change to the tenant is where they send the rent check.

If someone were under lease, I'd be seeing exactly what's in the lease paperwork, and comply to the letter.
Thank you for this togb. 13 years ago when we purchased this Rental, tenants were in place and the Buyers (us) had to assume the Lease of the Seller which was another 8 months or so. All other properties we toured before purchase had tenant in place also (middle of schoolyear) as this is standard in this college town. From what I understand here in CA, the Lease goes with the property (Buyer needs to assume existing Lease agreement).
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VeryBlessedCali
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Re: Seeking your Inputs on Selling Tenant Occupied Rental Property

Post by VeryBlessedCali »

It appears I will need an Assignment of Lease Agreement (when Buyer of income property assumes the Seller's rights and obligations under existing rental and lease agreement, to transfer the Seller's interest in the lease agreement to the Buyer).
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Re: Seeking your Inputs on Selling Tenant Occupied Rental Property

Post by ZWorkLess »

I sold a rental with the tenants in place last March -- RIGHT after COVID shutdowns began, terrible timing, but great luck selling fast.

Things I did:

1) paid for a maid service right before listing and weekly until sold (ended up not having to follow through with all the cleanings because the renters were college students and 3/4 of them weren't actively living there due to campus closures.) This was WELL worth it. House sparkled. Also hired someone to cut the lawn regularly (renters were very slack). Also, did yard cleanup (DIY and hired power washer.)

2) Told the renters that once I had a solid sales contract, I'd stop charging them rent. Also offered them early release from their leases. 1 had already moved out (December grad, but still paying rent), one moved out right away, one didn't move out until May but wasn't actually present at the house, the last one was a very tidy grad student who stayed until her lease ended.

3) Bought renters lots of meals/donuts/treats when I was around doing pre-listing cleanup. Just to keep them as friendly and welcoming as possible.

3) House sold fast, so I only had to pay for maybe 3 cleanings and a couple mowings.

4) I thought about offering a cash incentive for a sales contract or similar, but didn't need to and never did. The free rent was enough motivation, I guess. But I would have done that or more if I hadn't been confident that the girls were on board with being nice about showings. I think they really appreciated the cleaning lady, lol.

Other details . . .

* The listing agent wanted copies of all leases at the outset. (I had separate leases for each tenant.) I used the same agent who had sold this college rental to me 4 years earlier, as I knew she was very experienced with the rental market. I'd strongly advise using a listing agent who handles a lot of rentals. It was really helpful having her know all the logistics, etc.

* At closing, I wrote the new landlord a couple extra checks that were separate from the closing stuff. One was for the security deposits for the renter still in the property. The other was for the rents I'd already received covering the dates after the closing. (The remaining tenant had prepaid for a whole year.) I also kept in personal contact with my remaining renter and promised to make her whole if the new landlord didn't return her deposit or was otherwise an asshat.

* I was shocked at how little clean up our agent wanted us to do. My personal pride meant I was going to make sure the house and yard were tidy, but the only thing she wanted me to do was power wash the outside. I had really expected to replace the carpeting and paint the whole place, but nope. Steamcleaned the carpet and spent a couple hours touching up paint, and that was more than enough so far as our agent advised, and she was right. I guess folks who are buying rentals are generally not so impressed by cleanliness/staging. This of course might vary with market. She really didn't want me to spend money preparing for sale. I was shocked that she was right and it sold fast even though it literally hit the market days after lockdowns began in earnest.
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VeryBlessedCali
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Re: Seeking your Inputs on Selling Tenant Occupied Rental Property

Post by VeryBlessedCali »

ZWorkLess wrote: Mon Sep 20, 2021 10:44 am I sold a rental with the tenants in place last March -- RIGHT after COVID shutdowns began, terrible timing, but great luck selling fast.

Things I did:

1) paid for a maid service right before listing and weekly until sold (ended up not having to follow through with all the cleanings because the renters were college students and 3/4 of them weren't actively living there due to campus closures.) This was WELL worth it. House sparkled. Also hired someone to cut the lawn regularly (renters were very slack). Also, did yard cleanup (DIY and hired power washer.)

2) Told the renters that once I had a solid sales contract, I'd stop charging them rent. Also offered them early release from their leases. 1 had already moved out (December grad, but still paying rent), one moved out right away, one didn't move out until May but wasn't actually present at the house, the last one was a very tidy grad student who stayed until her lease ended.

3) Bought renters lots of meals/donuts/treats when I was around doing pre-listing cleanup. Just to keep them as friendly and welcoming as possible.

3) House sold fast, so I only had to pay for maybe 3 cleanings and a couple mowings.

4) I thought about offering a cash incentive for a sales contract or similar, but didn't need to and never did. The free rent was enough motivation, I guess. But I would have done that or more if I hadn't been confident that the girls were on board with being nice about showings. I think they really appreciated the cleaning lady, lol.

Other details . . .

* The listing agent wanted copies of all leases at the outset. (I had separate leases for each tenant.) I used the same agent who had sold this college rental to me 4 years earlier, as I knew she was very experienced with the rental market. I'd strongly advise using a listing agent who handles a lot of rentals. It was really helpful having her know all the logistics, etc.

* At closing, I wrote the new landlord a couple extra checks that were separate from the closing stuff. One was for the security deposits for the renter still in the property. The other was for the rents I'd already received covering the dates after the closing. (The remaining tenant had prepaid for a whole year.) I also kept in personal contact with my remaining renter and promised to make her whole if the new landlord didn't return her deposit or was otherwise an asshat.

* I was shocked at how little clean up our agent wanted us to do. My personal pride meant I was going to make sure the house and yard were tidy, but the only thing she wanted me to do was power wash the outside. I had really expected to replace the carpeting and paint the whole place, but nope. Steamcleaned the carpet and spent a couple hours touching up paint, and that was more than enough so far as our agent advised, and she was right. I guess folks who are buying rentals are generally not so impressed by cleanliness/staging. This of course might vary with market. She really didn't want me to spend money preparing for sale. I was shocked that she was right and it sold fast even though it literally hit the market days after lockdowns began in earnest.
ZWorkLess- my heartfelt gratitude for all the information you provided. These are very valuable and super helpful to us- THANK YOU!! May your kindness be returned to you a thousand-fold.
We were also planning on using the same agent that we used to purchase the property 13 years ago- we are still deliberating because Rentals is not really her expertise.
We shall follow your footsteps and hopefully our Rental will get sold fast too. MANY THANKS again ZWorkLess!
refurb
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Re: Seeking your Inputs on Selling Tenant Occupied Rental Property

Post by refurb »

Depending on the exact property type and age, almost all rentals are covered by AB1482 in CA and tenants have just cause eviction protection. Under that law, leases don’t “end” and the only way to have them leave is if they break the terms of the lease or voluntarily leave.

It’s usually a good idea to get a lawyer involved if you want an empty unit for sale. And yes, typically an empty unit will get you a higher price.

Specific cities in CA - SF, Berkeley, etc can have their own rent control laws that are even more complicated. If you screw up the process, the rent board can make you start again. For example in SF you can’t just buy a tenant out - there is a complex process and forms to fill out to make it legit.

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Re: Seeking your Inputs on Selling Tenant Occupied Rental Property

Post by 123 »

Don't be a cheap landlord to your own detriment. Come to an agreement with your tenant about an early termination of the lease. You may have to pay the tenant to leave early. It could be worth it to pay the tenant (for example) $10,000 to move out on 14 days notice if it allows you to sell the property when market conditions are very favorable. If the new owner is saddled with a tenant the amount they are willing to pay for the property may be considerably less, particularly in COVID19 times where all kinds of tenant protection rules and regulations could forestall an eviction long after the term of the current lease ends.
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